We use cookies to customise content for your subscription and for analytics.If you continue to browse Lexology, we will assume that you are happy to receive all our cookies. For further information please read our Cookie Policy.

Dodging the corporate veil - recent attempts to hold companies liable for the actions of their foreign subsidiaries

Any Canadian resource company with operations abroad should be aware of the emerging trend of lawsuits against Canadian mining companies seeking damages for the alleged actions of their foreign subsidiaries. Traditionally, such suits have been prevented by the “corporate veil” that insulates a parent company from liability for the actions of its subsidiaries. These latest lawsuits attempt to get around the corporate veil issue by focusing on the Canadian companies’ public statements regarding their commitment to corporate social responsibility.

The first of these cases in Canada originated in Ontario, with Choc v. Hudbay Minerals Inc. The plaintiffs, indigenous Mayans from Guatemala, sought damages against Hudbay and its subsidiaries for alleged human rights abuses by security personnel at the Guatemalan mine site. Hudbay sought to have the claims summarily dismissed on the ground that it was “plain and obvious” that they disclosed no cause of action. However, in a July 2013 ruling, the Ontario Superior Court of Justice allowed the claims to proceed.

Likely inspired by the Ontario court’s willingness to recognize that such claims at least deserve a day in court, two similar actions have now been filed in British Columbia. The first, Garcia v. Tahoe Resources Inc. (filed on June 18, 2014), also concerns the actions of mine security personnel in Guatemala, and seeks damages for the alleged shooting of protestors. The second, Araya v. Nevsun Resources Ltd. (filed on November 20, 2014), concerns wide-ranging accusations of use of forced labour, torture, slavery and other human rights abuses at a mine in Eritrea.

As mentioned briefly above, what is particularly interesting about these filings is the novel way that they attempt to link the Canadian companies to the abuses that are alleged to have been committed. Rather than seeking to have courts “lift the corporate veil” to hold the parent companies liable for their subsidiaries actions, the plaintiffs instead allege that the companies are directly liable on traditional tort grounds, such as negligence, battery, and conversion. In order to make a direct link to the Canadian companies, the plaintiffs point to public statements by the companies committing to oversight and the maintenance of certain standards at the mine sites, as well as the companies’ adoption of various international standards, such as the 2006 IFC standards on social and environmental performance and the Voluntary Principles on Security and Human Rights. The plaintiffs allege that these commitments represent acknowledgement by the Canadian companies that they retained ultimate control over and had responsibility for operations, particularly security practices.

Even if a court accepts that the Canadian companies had a measure of responsibility for the alleged abuse, in order for the plaintiffs to succeed they would also have to establish that the Canadian companies owed them a “duty of care” (a legal obligation towards the other person). The test for establishing a novel duty of care (the “Anns test”) has two stages. First, the court must consider whether there is sufficient “proximity” between the parties that the harm complained of was “reasonably foreseeable”. If so, the court must then consider whether there are any policy considerations that should negate the prima facie duty of care. In the context of claims by foreign nationals against Canadian mining companies, such policy considerations might include, among other things: the risk of burdening the Canadian judicial system with foreign claims; the effect on the fundamental principle of separate corporate personality; and the effects, whether positive or negative, on the Canadian government’s efforts to encourage companies to adopt corporate social responsibility principles. The questions of what policy considerations will be considered and what weight will be given to each are sure to prove contentious as these actions unfold and the answers provided by the courts will merit close scrutiny.

It must be stressed that none of the claims discussed above have yet been accepted by a Canadian court. However, in the absence of a definitive ruling precluding such claims – which is unlikely for years, if ever – increasing numbers of similar actions are to be expected.

Accordingly, Canadian companies operating through foreign subsidiaries would be well advised to review their corporate social responsibility commitments and ensure that their actions mesh with their words.

Related topic hubs

Compare jurisdictions: Oil & Gas

"I find the newsfeeds to be extremely beneficial as a means of keeping up with changes in the law. I've made a regular practice of sharing a number of the items with members of our HR staff. Please keep up the good work."